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DEMONETISATION

The document discusses India's demonetization of 2016 which removed Rs. 500 and Rs. 1000 currency notes from circulation. It aimed to curb black money, corruption, and move toward a cashless economy. While it initially eliminated black money holdings, it also significantly reduced cash liquidity and economic activity in the short term, especially impacting the informal sector. Both benefits and challenges were experienced as a result of this large scale demonetization effort.

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Akshat Khetan
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85 views13 pages

DEMONETISATION

The document discusses India's demonetization of 2016 which removed Rs. 500 and Rs. 1000 currency notes from circulation. It aimed to curb black money, corruption, and move toward a cashless economy. While it initially eliminated black money holdings, it also significantly reduced cash liquidity and economic activity in the short term, especially impacting the informal sector. Both benefits and challenges were experienced as a result of this large scale demonetization effort.

Uploaded by

Akshat Khetan
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PDF, TXT or read online on Scribd
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DEMONETISATION

Amritpal Kaur
DEMONETIZATION
ION
DEMONETISATION

•Act of removing a currency unit of its status as legal tender

•HISTORY
•1946: Rs. 1,000 and Rs. 10,000
•1978: Rs. 1,000 , Rs. 5,000 and Rs. 10,000

•RECENT
•8th November,2016: Rs. 500 and Rs.1,000
•Amounted to withdrawal of 86% of currency in circulation
EXTENT OF
DEMONETISATION

•8th November,2016: Dooms day for unaccounted cash holders

•Led to massive loss of liquidity in the economy

•Demonetised currency: valued at Rs. 15.4 trillion


: 86.9% of total currency in circulation
REASONS OF
DEMONETIZATION
REASONS OF
DEMONETISATION
• Elimination of black money
• Eradication of Corruption
- High valued notes are generally accepted as bribe
• Elimination of Counterfeit Currency (Imitation Currency)
• Elimination of Terror Funding
• Money Laundering (Hidden transfer of money)
• Cashless Economy
• Rise in Government Revenue
• Fight Tax Evasion
• Financial Inclusion
- Poor people deposit cash in Jan Dhan Accounts
- Can avail loans from banks on the basis of deposits
GOOD IMPACT
OF
DEMONETIZATIION
GOOD IMPACT OF
DEMONETISATION

• Check on Food Inflation


- liquidity crunch led to fall in stock piling of food-grains
• Elimination of Fake Currency ( 100% )
• Surge in Cash Deposits
- in Jan Dhan Accounts
- Rs. 11.5 Lakh crore deposited in banks
• Attack on Hawala Transactions
( Hidden transactions and transfer of money )
• Realisation of Overdues
- People rushed to banks to clear loans, property tax, electricity bills etc.
GOOD IMPACT OF
DEMONETISATION

• Push towards Digitisation


- People driven to digital mode of transactions
- A big move towards cashless economy
- Promoted banking habits
• Tax Compliance ( Compliance : act of confirming)
- A shift from cash transactions to digital led to better tax compliance
- Recorded a noticeable rise in tax to GDP ratio
• Real Estate Cleansing
- This sector served as centre-stage of shadow economy ( economy that is
driven through black money transactions)
- With removal of black money this sector lost its sheen for speculative
investment through black money
BAD IMPACT
OF
DEMONETIZATION
BAD IMPACT OF
DEMONETISATION
• A Deep Hurt to Economic Sentiment
- Banning nearly 86% currency : Serious cut in monetary base
- declined from Rs. 22.5 trillion to Rs.13.7 trillion
- Economic sentiment hurt: Economic activities suffered
- Production, Consumption, Investment and Exchange : received big jolt
• Large Scale Lay-off in Unorganised Sector
• Dent in GDP Growth
- Nearly 2% decline in GDP growth rate
• Slump (drop) in Real Estate
• Inconvenience to the Public
- Sudden announcement made situation chaotic
BAD IMPACT OF
DEMONETISATION

• Costly for the Government


- Replacement of all Rs 500 and Rs. 1,000 notes: cost RBI at least Rs. 12,000 crore
• Difficulty in Non-cash Transactions
- Half of population : not well versed with the card transactions
• Corruption and Fraud
- Baking and Post office personnel : illegally exchanged old currency
- Misuse of Jan Dhan accounts to exchange black money
• Huge Loss to Daily Wage Earners
- Lost jobs: Employers were unable to pay their daily wages

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